Definition:
An Income Tax is imposed based on the net income of the business.
A Net Income is determined by deducting the Cost of Sales or Services and Allowable Operating Expenses from Gross Sales or Gross Receipts of the business during a taxable period.
Illustrative Formula:
Gross Sales / Gross Receipts
Less: Cost of Sales / Cost of Services
Equals: Gross Margin or Gross Income
Less: Operating Expenses (Allowable)
Equals: Net Income
Net Income
Multiply by: tax rate
Equals: Income Tax
Less: Quarterly Income Tax Paid
Equals: Income Tax still due and payable
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